Development aid

It doesn’t take a village

The perverse effects of local aid

CHANNELLING development aid directly to local decision-makers sounds like a good plan. Empowering local groups like community clubs and school boards means decisions can reflect actual needs on the ground. It should mean fewer bureaucratic hands in the pot, too. But a new report by two World Bank economists warns against relying on decisions made at the most local level of government. Entrenched elites, bribery and fraud are as much of a problem in village life as they are in big emerging-market bureaucracies.

That warning will come as a shock to many. The idea that management of natural resources and services like health and education might be improved if locally controlled has deep roots in development, say Ghazala Mansuri and Vijayendra Rao, the report’s authors. Where local participation does not happen organically, in groups that represent parents, women or workers, development aid often tries to nudge such efforts along by “inducing” it.

Projects designed to build local governance or distribute funds through local bodies represent close to 30% ($85 billion) of the World Bank’s development resources over the past decade. Other aid providers, including the United Nations and Britain’s Department for International Development, have trodden the same path.

But the evidence in support of induced local participation falls far short of the theory, Ms Mansuri and Mr Rao’s exhaustive review shows. The first problem is corruption. A study based in Madagascar, for example, found that central government was actually a relatively safe steward of development cash, with more of it siphoned off at local-government levels.

The scale of theft and fraud is shocking. In one education project in Uganda, local politicians stole 87% of the aid money. The remainder was divvied up in a regressive way: better-off communities got more than the poorest. In Indonesia a decentralised subsidised-rice programme ended up with a fifth of the rice going missing. Much of the rice that didn’t disappear went to better-off families that were not eligible to get it. Overall, the scheme lowered welfare.

Other projects provide cash to help local communities manage natural resources like rivers and forests. Getting this right is vital since the poorest often make a living from such resources. In addition forests double up as a sort of safety net, providing food, shelter and fuel in the toughest times. But in Tanzania a local forestry taxation and licensing system ended up raising barriers to entry for the poorest timber and charcoal producers, making them more dependent on town-based traders and powerful village leaders.

Projects that boost local oversight of services can work. When local Kenyan communities started monitoring schools, teachers began to show up on time and students did better. But there are bad examples, too. In Argentina school decentralisation pushed up students’ test scores on average but the benefits were confined to pupils in the richer areas, with poor kids seeing their grades decline. The aid may have undermined the worst-off.

The report paints a grim picture of how some groups are undermined by local elites. The most marginalised are often minority ethnic groups and women. Those that have little access to news (because they live far away, or cannot read) fare worst. Even so, Ms Mansuri and Mr Rao are optimistic: they reckon that by laying bare failings things can start to improve. Their new boss, Jim Yong Kim, has promised a World Bank focused on delivery and on hard evidence. Setting out a strategy to deal with the findings in this report will be an early test of that pledge.